In the years ahead, Inheritance Tax (IHT) is likely to play an even larger role in estate planning — especially from April 2027, when pensions will also fall into its scope. At BRI, we’re already working with clients to explore effective strategies for this changing landscape.
When reliefs like Business Relief or trust planning are unsuitable, or when clients prefer not to part with significant gifts today because of uncertainty over future finances, another strategy can have great appeal: whole of life insurance.
If you have surplus regular income, a whole of life policy can allow you to fund a guaranteed sum to cover your IHT exposure — helping your beneficiaries retain the full value of your assets. Frequently, these premiums can be met from surplus pension income or the ongoing yield from ISAs or other investments.
Insurance vs Investment: Which is the Smarter Route?
It’s natural to see insurance premiums as a cost. But when you compare the outcomes side by side, whole of life insurance often starts to look far more compelling.
As an example: suppose you wished to secure £500,000 to cover an expected IHT burden or leave a legacy. Because IHT is charged at 40%, you’d actually need £833,333 gross in your taxable estate (assuming no reliefs or exemptions) just to net that £500,000.
However, a whole of life policy written into trust lies outside your estate for IHT. The monthly premium is your only outlay, and the sum assured is paid tax-free to your beneficiaries. That structure makes it a highly efficient and straightforward way to meet a known liability — without eroding your estate’s value.
Here’s an example:
Consider a healthy 65-year-old man facing an IHT burden of £500,000.
According to the Office for National Statistics’ Life Expectancy Calculator, his longevity profile might look like this:
An indicative premium – before underwriting – might be around £928 per month.
| Policy Term | Whole-of-Life Internal Rate of Return (IRR) | Required Investment Return (net, after IHT) |
| 20 years (to age 85) | 7.20% | 11.39% |
| 27 years (to age 92) | 3.44% | 6.62% |
| 31 years (to age 96) | 2.22% | 5.04% |
| 35 years (to age 100) | 1.34% | 3.89% |
The “required investment return” is the net annual growth rate an investment would need to match the policy’s sum assured, after accounting for IHT. It assumes monthly contributions equal to the insurance premium.
In this scenario, the breakeven point is age 109 — meaning total premiums paid equal the death benefit. That represents a 44-year term.
Why This Matters to You
To match the net value of the policy, an investment would need to deliver 11.39% per annum if death occurs at age 85. While markets may occasionally yield double-digit returns, they are volatile and never guaranteed.
Whole of life insurance, however, provides certainty — a guaranteed, tax-free benefit delivered to your beneficiaries. For those with discretionary income who want to protect the value of their estates, it can be a powerful tool.
In Brief
Whole of life insurance offers you:
If you’d like to explore whether whole of life insurance could enhance your estate planning, please telephone us on 01676 523 550 or contact your usual adviser.
